RALEIGH – Tucked down inside all the bad news about last week’s passage of a North Carolina state budget – and there were lots of depressing fiscal shadows in there to hide in – was a feature of the spending plan that didn’t get much initial attention. Health and Human Services spending, long a major source of fiscal pressure in state government, will actually grow at a slower rate (6.5 percent) than the General Fund budget as a whole (either 7 percent or 8 percent, depending on whose accounting you buy).
By far the largest component of the HHS budget is Medicaid. In Gov. Mike Easley’s original budget, rapid Medicaid growth helped propel a 7.9 percent growth rate in General Fund expenditures for HHS. The North Carolina Senate, showing a remarkable and praiseworthy grasp of fiscal reality, included a number of provisions in its version of the 2005-07 to tighten Medicaid reimbursements, move some dual-eligibles off the rolls, and make other adjustments. The result was a much-improved 4.5 percent growth rate, representing about $130 million in savings for taxpayers.
Naturally, this couldn’t be allowed to stand. The House version of the budget pushed the HHS growth rate back up to nearly 8 percent. In the conference committee, most of the Senate’s specific savings recommendations for Medicaid didn’t make the cut. But the Medicaid amount, and HHS as a whole, did come in a bit lower, thanks in part to reassessments of the likely service demands for the coming fiscal year.
Legislators and other policymakers shouldn’t get used to that. Medicaid and other health programs are still likely to grow faster than other state expenditures in the coming years. Indeed, 6.5 percent growth still represents hundreds of millions of dollars in new HHS spending this year, and looks “good” only by comparison to the far-greater splurging on higher education (11 percent for UNC and 14 percent for community colleges); environmental programs (15 percent); and corporate subsidies, economic development, and other Commerce-related agencies (nearly 80 percent).
North Carolina hasn’t yet come up with a real, 21st century approach to the Medicaid issue. Most other states haven’t either, though there are some promising experiments underway. John Goodman and Devon Herrick of the National Center for Policy Analysis wrote in a recent report that states ought to be seeking waivers from the federal government to try out a number of innovative ideas, including 1) private-sector contracting, 2) integration of the Medicaid population into private health plans, 3) health savings accounts, and 4) stronger incentives to purchase private long term care insurance.
No matter what, for reasons previously discussed, it is likely that any state program devoted to covering health-care expenses will see its cost grow faster than the rest of state government. There may be an exceptional year here and there, and 2005-06 may qualify. But wishful thinking is no excuse for inaction – and the kind of action that will really matter here will require the courage to say “no” to influential interest groups, some with political heft, some merely loud, and to middle-income North Carolinians seeking to use Medicaid as inheritance insurance.
Hood is president of the John Locke Foundation.